SAP for Dummies

SAP for Dummies: Check this discussion which explains the objectives and use of SAP Software. And why is SAP software the world’s leading ERP software package?

Now that SAP is the industry leader in the Enterprise solutions, people have heard about it though the term SAP carries different meanings to different people. I keep on meeting people outside SAP circles who know little or nothing about it. Some think it is an Accounting Software. For others, it's an ERP software package but not knowing what exactly the ERP aspect means. Looking at what SAP software aims to achieve and which areas it serves, a newbie has seen or heard about only one of its many facets.

Here in this blog article ‘SAP for Dummies’ I will try to deal with this gap in understanding for a layman having little or no prior SAP knowledge. The article answers 5 questions revealing the essence of our discussion here.

1- Is SAP An ERP Software Package?

To put the things in perspective, SAP software refers to a range of enterprise application software produced by SAP AG, the leading ERP solutions provider company.

It aims at improving business processes in an organization by integrating the business functions carried out by different departments, divisions or line of industries, etc. It results in improved availability and use of information across the organization.

2- Which Business Problems SAP Addresses?

To understand the value SAP software offers, let us take an example of a manufacturing company, equally relevant for non-manufacturing organizations also, to base upon our understanding of the scheme of things.

The company has various departments for different business functions e.g. Production, Quality Management, Materials Management, Finance, to name a few major ones.

The employees in these departments maintain data relating to their business functions. For example, group of employees in the Materials Management department are responsible to make available the raw material or semi-finished items to production as per the production schedule. So they develop the material requirements and raise purchase requisition for materials in shortage.

The purchasing department is responsible to create and maintain data for various purchase orders, contracts and vendors. On the similar note, the sales team creates a sales order for a finalized customer order against which the production has to commence, say.

Before the advent of computers, the data was maintained using stationary and arranged physically in files in the archives. Whenever it was required, it was referred from these registers or files. Naturally in a large enterprise involving thousands of materials and lots of processes, this is very cumbersome and sounds like 19th century in today’s time :-)

With the arrival of computers, different application software arrived on the scene for different purposes. Some helped in financial account-keeping, some others helped in material requirements planning, still others in inventory management and so on.

The companies very soon had their in-house IT departments to create and maintain the hardware and software infrastructure. The IT departments acquired software applications from vendors outside the organization and sometimes developed in-house applications for the specific requirements of their enterprise. Soon the companies had plethora of applications for different business functions with little or no integration among themselves.

In this scenario, the data stored in one application is available to the users of that application only. Since there are many applications, the use of information is limited across organization and methods like mails, circulars, telephone calls, etc are required for getting the required information.

This results in an inefficient Management Information System. The delay in information access affects the decision-making adversely. There may even be information which is not in the knowledge of other departments though it is genuinely required by them in many cases.

In addition, individuals use standard software like Microsoft excel to create and maintain data to make their work easy. This data remains on the individual hard-disk vulnerable to loss on account of disk failure or accidental deletion. Apart from that, the information is not available across organization as others are not aware of its existence.

3- Does SAP achieve Business Integration?

Lack of integration of business processes discussed above is a big problem. For example, if the finance function is not integrated with the Sales Order Management function, the creation of sales order by the sales department does not automatically update the relevant financial entries into the general ledgers. Maintaining the financial entries becomes a separate (and manual) process and not automatically triggered had these business functions been integrated. Till the time the sales information is not updated into the financial accounting system, the information may not be available for the users of this system. Result – delayed information and since it is a manual process so it is prone to human (data entry) error too.

The ERP software solutions try to resolve the problem of integration by providing a company-wide software solution which will be used by all the departments. They have a central data repository (database) across the organization for all the departments and business functions. Persons in different departments carry out their day-to-day transactions and update data here which in turn is available to all others in real-time (it is updated at the same instance).

ERP can be broadly categorized into two categories: Administrative ERP and Operational ERP.

Administrative ERP includes, for example, Finance, Human Capital Management, Procurement, etc and Operational ERP includes Manufacturing, Order Management, etc. And the integration among the different areas and between these two categories means that an operational business transaction like creation of a sales order or receipt of material from a vendor results in a financial entry into a general ledger.

SAP is the ERP software package which achieves this integration. SAP became the leader in the enterprise software market on account of high level of integration among different business functions which is the main strength of SAP till date. You can visit the official SAP website for a glimpse of solutions it offers.

4- Where does SAP stand in the ERP Market?

Until around 15 years ago, SAP was a stand-alone ERP software package having limited interface with the outside world. In the era of mainframes (1970s and 80s), it was known as R/2 and subsequently with the advent of personal computers, it acquired the name R/3 with the adoption of 3-tier architecture.

Further as web-technology and internet communication advanced, SAP has much in its arsenal than an isolated stand-alone software and offers a complex set of business solutions called ‘SAP Business Suite’ which can very well work in the heterogeneous software environment of an enterprise running many SAP and non-SAP software applications.

There were many ERP software when the ERP market was catching up in the 90s, only two big players remain in the large enterprise segment now – SAP and Oracle.

There are other ERP systems also which focus on medium and small enterprises. With ERP implementation in most of the large enterprises, SAP started focusing on medium and small enterprises. Few know that SAP has a product Business One for small companies.

5- What about the technology supporting SAP solutions?

SAP software meets the ERP needs of an organization and integrates the business functions of an organization. Naturally it serves complex requirements and the ever changing IT needs of enterprises. SAP has developed a technological platform called SAP Netweaver to support all its solutions and manage other applications in a heterogenous IT landscape of an SAP customer company. In addition to its in-house technology, SAP Netweaver supports the use of other major technologies like Java, Dot Net, IBM Webshpere, etc. to provide a framework where these applications can interact in a meaningful way.

SAP for Dummies: Closing Note

Use of SAP solutions results in availability of information for organization-wide use which is the backbone of an efficient Management Information System. Its applications allow for integration of People, Processes and Information.Today's organizations have no choice but to be agile and be able to respond to dynamic market conditions and that's where their IT infrastructure plays a major role. 

With this our discussion comes to an end ! Hope it helped you develop a perspective about SAP and the concept of ERP. Follow on Google+ Business Page for more and to be in touch! Urge you to share your thoughts, or words of appreciation, if it benefited you in any way :-) in the comments below. Good Luck !

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